Cite as: Bond, Schoeneck & King v. NYSDED, 4271-12, NYLJ 1202585570588, at *1 (Sup., AL, Decided January 10, 2013)

Judge Richard M. Platkin

Decided: January 10, 2013

Additional Respondents/, Defendants

Kenneth Adams, as the Commissioner of the Department of Economic Development, the Empire Zones Designation Board, the New York State Department of Taxation and Finance and Thomas H. Mattox as the Commissioner of the New York State Department of Taxation and Finance

ATTORNEYS

Attorneys for Petitioner/Plaintiff: Jonathan B. Fellows and J. P. Wright, of counsel, Bond, Schoeneck & King, PLLC, Syracuse, New York.

Attorney for Respondents/Defendants: Eric T. Schneiderman, Attorney General, Christopher W. Hall, of counsel, Albany, New York.

Papers Considered:

Notice of Petition, dated July 26, 2012;

Summons, dated July 26, 2012;

Verified Petition/Complaint, sworn to July 20, 2012, with attached exhibits A-U;

Affidavit of Mario J. Musolino, sworn to September 20, 2012, with attached exhibits A-I;

Verified Answer, sworn to September 24, 2012;

Affirmation of Christopher W. Hall, Esq., dated September 24, 2012, with attached exhibit A;

Respondents' Memorandum of Law, dated September 28, 2012;

Petitioner's Memorandum of Law, dated October 17, 2012

 

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Petitioner/plaintiff Bond, Schoeneck & King, PLLC ("BS & K") brings this hybrid CPLR article 78 proceeding and declaratory judgment action seeking an order: (1) declaring that the retroactive decertification of BS & K from the Empire Zones program is unconstitutional; and (2) vacating and annulling the determinations of the Commissioner of the Department of Economic Development ("the Commissioner" and "DED" respectively) and the Empire Zones Designation Board ("EZDB" or "the Board") decertifying BS & K as an Empire Zone business and directing the Commissioner to issue a retention certificate. Respondents/defendants oppose the petition/complaint through an answer.

BACKGROUND

In 1986, the New York State Legislature adopted the Empire Zones program to stimulate the development of new businesses, the expansion of existing businesses and the development of human resources in economically impoverished areas of the State through the provision of tax incentives and other forms of assistance (see General Municipal Law ["GML"] art 18-b).

BS & K is a law firm with offices throughout upstate New York. It was certified as a qualified Empire Zone enterprise with respect to its headquarters in downtown Syracuse and its law offices in Buffalo, Albany and Oswego. These certifications provide that they shall continue until terminated by operation of law or by administrative action taken pursuant to the Empire Zone legislation or its implementing regulations.

The Empire Zones legislation was amended by Chapter 57 of the Laws of 2009 ("the 2009 Amendments"). Among other things, the 2009 Amendments authorized the Commissioner to decertify businesses that "caused individuals to transfer from existing employment with another business enterprise with similar ownership and located in New York state to similar employment with the certified business enterprise" or "acquired, purchased, leased, or had transferred to it real property previously owned by an entity with similar ownership" (GML §959 [a] [v] [5]). Relatedly, the Commissioner was required to "[c]onduct a review during calendar year two thousand nine of all business enterprises to determine whether the business enterprises should be decertified" pursuant to the 2009 Amendments (id. [w]). However, even where a business enterprise falls within the criteria for decertification, the Commissioner may, after consultation with the Director of the Budget, consider "other economic, social and environmental factors when evaluating the costs and benefits of a project to the state" and exercise his "sole discretion" to continue the enterprise's certification based upon such factors (id.).

Where a business is decertified pursuant to the 2009 Amendments, "[t]he commissioner shall provide written notification to such business enterprise of his or her determination to revoke the certification, including the reasons therefor" (id.). This determination may be appealed to the EZDB within a specified time frame, and an enterprise that has timely filed an appeal to the Board may present "a written submission…explaining why its certification should be continued" (id.). The Commissioner's decertification decision may be reversed only where the EZDB "unanimously finds that there are "extraordinary circumstances" that would justify continued certification (id.).

 

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On May 18, 2009, DED issued a letter advising BS & K that its Empire Zone certification would be revoked pursuant to GML §959 (a) (v) (5), sometimes referred to as the "shirt-changer" prohibition. On June 29, 2009, the Commissioner's designee issued letters revoking BS & K's certification retroactive to January 1, 2008.1 In July 2009, BS & K notified the EZDB of its intention to appeal the decertification determination, and the law firm submitted a written appeal on August 28, 2009 detailing its claim of extraordinary circumstances. On October 15, 2010, the EZDB summarily denied BS & K's appeal.

In February 2011, BS & K commenced a hybrid CPLR article 78 proceeding/declaratory judgment action in this Court ("Prior Proceeding") challenging the decertification and the retroactive application of the 2009 Amendments. On October 14, 2011, the Court (McGrath, J.) issued a Decision/Judgment that granted the petition, annulled the EZDB's denial of BS & K's appeal and remitted the matter to the EZDB "for reconsideration pursuant to 5 NYCRR 14.3".

On April 10, 2012, a reconstituted EZDB met to reconsider certain decertification appeals. Following review of BS & K's original appeal papers and upon de novo reconsideration, the EZDB voted on May 4, 2012 to affirm BS & K's decertification from the Empire Zones program. This hybrid proceeding/action followed.

ANALYSIS

A. Retroactivity

For its first cause of action, BS & K seeks a declaration that the 2009 Amendments cannot be retroactively applied. The Appellate Division, Third Department has held on several occasions that a business enterprise cannot be retroactively decertified from the Empire Zone program pursuant to the 2009 Amendments (see Matter of WL, LLC v. Department of Economic Dev., 97 AD3d 24 [2012], lv granted 2012 NY Slip Op 91829; Matter of Hague Corp. v. Empire Zone Designation Bd., 96 AD3d 1144, 1147 [2012]; Matter of Morris Bldrs., LP v. Empire Zone Designation Bd., 95 AD3d 1381 [2012]). In so holding, the Appellate Division reasoned that long-term, certified business enterprises "could not have anticipated that the program rules governing certification would be changed and had every reason to assume that [they] would continue to enjoy the benefits of certification so long as [they] continued to comply with the provisions in the [then] existing statutory enactments'" (Matter of Morris Bldrs., 95 AD3d at 1384, quoting Matter of WL, 97 AD3d at 32).

Given that the Third Department already has declared retroactive application of the 2009 Amendments to be unconstitutional in a factually indistinguishable case to which the respondents/defendants are party and Matter of WL will soon be before the Court of Appeals, this Court is not persuaded that issuance of a declaratory judgment at the present time would serve to stabilize the parties' legal relationship or eliminate uncertainty (see New York Public Interest Research Group, Inc. v. Carey, 42 NY2d 527, 530 [1977]; 3 Weinstein-Korn-Miller, NY Civ Prac, ¶3001.02). Respondents/defendants will be obliged to follow the law as articulated by the Court of Appeals, and if there remains a genuine controversy between the parties following the final disposition of Matter of WL for which declaratory relief would serve a useful purpose, BS & K may recommence an action at that time. Accordingly, the first cause of action seeking a declaratory judgment is dismissed without prejudice in accordance with the foregoing.

 

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B. Procedural Objections

For its second cause of action, BS & K challenges the procedures established and implemented by the Commissioner, DED and EZDB with respect to the 2009 Amendments. Specifically, BS & K complains that: (a) it was decertified without any opportunity to be heard; (b) the June 29, 2009 determination was a form letter without any analysis of the facts or law pertaining to BS & K; (c) the criteria for "extraordinary circumstances" were not defined until more than one year after BS & K's decertification and the filing of its appeal with the EZDB; (d) BS & K was not accorded the opportunity to make additional appeal submissions to the EZDB in connection with the court-ordered reconsideration of its appeal; (e) the Governor provided the EZDB "with an implicit directive to uphold the decertification"; and (f) BS & K was not accorded the right to a hearing before an administrative law judge, the right to call witnesses, submit evidence and conduct discovery.

The 2009 Amendments required the Commissioner to provide BS & K with written notification of his decision to decertify, the reason for decertification and notice of the right to appeal to the EZDB (GML §959 [w]). The determinations issued by the Commissioner to BS & K clearly state that the firm's certification is being revoked pursuant to the "shirt-changer" prohibition of GML §959 (a) (v) (5) and that BS & K could appeal to the EZDB. With respect to the EZDB appeal, the statute accorded BS & K the right to "present a written submission…explaining why its certification should be continued" (GML §959 [w]). BS & K availed itself of this opportunity by transmitting a comprehensive 22-page submission recounting the severe challenges faced by the cities of Syracuse, Buffalo, Albany and Oswego, the economic and social importance of BS & K's presence in these upstate cities, the extraordinary contributions that BS & K has made towards their revitalization and the negative impact of decertification on these cities. The foregoing establishes that respondents/defendants have provided BS & K with all of the process to which it was due (Matter of WL, 97 AD3d at 30-31; Matter of Hague, 96 AD3d at 1147; Matter of Morris Bldrs., 95 AD3d at 1383-1384).

Further, BS & K has failed to demonstrate any procedural impropriety in connection with this Court's reconsideration order. As stated above, the EZDB was ordered to reconsider BS & K's appeal pursuant to 5 NYCRR §14.3, an administrative regulation that requires the Board to "evaluate the merits of the appeal after considering the Notice of Appeal filed by the business enterprise." The administrative record establishes that the EZDB complied with 5 NYCRR §14.3 and the Court's remittal order by undertaking a de novo review of BS & K's appeal after review of its written submissions.

Relatedly, the Court rejects BS & K's contention that it unlawfully was denied the opportunity to make additional written submissions "following the [EZDB's] announcement of the criteria for extraordinary circumstances'" (Petition/Complaint ¶76). As an initial matter, the EZDB did not announce or promulgate a definition of "extraordinary circumstances". Rather, as the challenged determinations make clear, the term "extraordinary circumstances" is not defined by statute or regulation (Petition/Complaint Ex. S, at 3). As such, the Board compared BS & K's circumstances to situations previously found to be extraordinary (id.). Moreover, the Board correctly recognized that it was "not limited to the extraordinary circumstances that it has previously identified", but nonetheless determined that the justifications proffered by BS & K failed, in its view, to rise to the level of extraordinary circumstances (id. at 4). Finally, there is nothing in the administrative record indicating that BS & K requested the opportunity to make

 

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additional written submissions to the Board following the Court's reconsideration order.2

C. Extraordinary Circumstances

Finally, as a third cause of action, BS & K claims that the EZDB's determination that it failed to establish extraordinary circumstances is arbitrary and capricious and lacking a rational basis.

In reviewing administrative action, the Court's role is limited to determining "whether [the State agency's] determination is arbitrary and capricious, is affected by an error of law or constitutes an abuse of discretion" (CPLR 7803 [3]; Matter of Solomon v. Administrative Review Bd. for Professional Med. Conduct, Dept. of Health, 303 AD2d 788 [3d Dept 2003]; see Matter of Pell v. Board of Educ. of Union Free School Dist. No. 1 of Towns of Scarsdale and Mamaroneck, Westchester County, 34 NY2d 222 [1974]). "Arbitrary action is without sound basis in reason and is generally taken without regard to the facts" (Matter of Pell, 34 NY2d at 231). "[A] court may not substitute its judgment for that of the agency responsible for making the determination…" (Matter of Warder v. Board of Regents of Univ. of State of NY, 53 NY2d 186, 194 [1981]).

In enacting the 2009 Amendments, the State Legislature determined that "shirt-changers" are ineligible for the tax incentives and other benefits that flow from continued participation in the Empire Zones program (GML §959 [a] [v] [5]). Notwithstanding the adoption of this general principle, the Legislature conferred a measure of discretion upon the EZDB — a body consisting of State government officials and other members appointed by the Governor and the legislative leaders with expertise in taxation, economic development and labor issues — to authorize continued certification of a "shirt-changer" in "extraordinary circumstances", a term that is not defined in law (id. §959 [w]). Further, a finding of extraordinary circumstances may be made only upon the unanimous concurrence of the voting members of the EZDB (id.). It is apparent from this statutory scheme that the determination whether to allow a "shirt-changer" to continue to receive the benefits of the Empire Zones program is highly discretionary in nature and calls for the application of specialized expertise in policy sensitive areas.3

Here, the Board reviewed BS & K's submission and considered the social and economic impact of the law firm on downtown Syracuse and the three other upstate cities, the firm's investment in facilities and wages, and the positive benefit-cost ratio. The EZDB further considered BS & K's past contributions and its expected future contributions to upstate New York and compared all of these facts and circumstances to cases where the Board has found extraordinary circumstances. Upon consideration of the foregoing, the members of the Board who voted upon the subject appeal unanimously exercised their broad discretion to conclude that the contributions of BS & K to the upstate economy, while valuable, failed to rise to the level of extraordinary circumstances. As this highly discretionary, policy sensitive judgment finds substantial support in the record, the Court must decline BS & K's invitation to substitute its judgment for that of responsible Executive branch officials.

CONCLUSION

Based upon the foregoing, the Court concludes that petitioner's procedural and substantive challenges to the decertification determination must be rejected, and that the branch of the petition/complaint seeking a declaratory judgment must be dismissed as premature.

Accordingly,4 it is

 

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ORDERED that the first cause of action is dismissed without prejudice in accordance with the foregoing; and finally it is

ORDERED and ADJUDGED that the petition/complaint is denied in all other respects.

This Decision, Order and Judgment is being transmitted to petitioner's counsel for filing and service. All other papers are being transmitted to the Albany County Clerk for filing. The signing of this Decision, Order and Judgment shall not constitute entry or filing under CPLR §2220. Counsel are not relieved from the applicable provisions of that section respecting filing, entry and notice of entry.

1. While the 2009 Amendments did not expressly address the issue of retroactivity, Chapter 57 of the Laws of 2010 (Part R) specifically authorizes and directs retroactive application.

2. And even if BS & K had requested the opportunity to make updated written submissions to the EZDB and was unlawfully denied that opportunity, the remedy would be to remit this proceeding to the EZDB once again for reconsideration.

3. Given the composition of the EZDB and the nature of the "extraordinary circumstances" determination, the Court rejects BS & K's suggestion that it was inappropriate for the Governor to publicly express his views as to the proper role of State economic development incentives during the pendency of the firm's EZDB appeal.

4. The Court has considered petitioner/plaintiff's remaining arguments and contentions, but finds them unavailing.